Commentary: Biotech is a ripe field for insider-trading scandals

Bloomberg on Nov. 13 featured a story on insider trading that should be required reading in the life sciences industry. The article starts with the case of James Fan, the clinical programming manager at Seattle Genetics ($SGEN) charged in a $200,000 insider trading case. Fan wound up committing suicide, and his brother landed in prison with an 18-month sentence.

Fan's case is just one of several insider trading scandals in the biotech industry to hit the press in recent years. In case after case, the insiders caved in to the notion that they could gain a sudden windfall of cash based on their insider knowledge about an experimental drug. In this industry, billions of dollars are being gambled on the turn of a regulatory or clinical study card. And getting a piece of the action with a sure bet is a temptation many can't avoid.

"Healthcare is particularly attractive to criminals because so much turns on the government regulatory approval," U.S. attorney Rod Rosenstein tells Bloomberg. "If you have a pending application for a new drug, the difference between yes and no on approvals can be tens or hundreds of millions of dollars."

"The biotech industry is particularly vulnerable to insider trading schemes because a successful or unsuccessful clinical trial can cause such sharp market movements," a federal prosecutor notes.

But the risk of getting caught wasn't enough to dissuade Fan and others from taking a chance. Read this story, then pass it on.